Inland Empire Real Estate Market Update – April 2024

A Tale of Soaring Prices and Stagnant Wages

If you’ve been watching the Inland Empire’s real estate market, you know it’s been a bit of a wild ride, especially since the pandemic hit. Home prices have soared to dizzying heights, with San Bernardino County seeing an 8.5% leap in the past year and Riverside County not far behind at 5.7%. If we zoom out over the last five years, the picture becomes even more dramatic: both counties have seen values skyrocket by a staggering 60%!

However, this meteoric rise in housing costs has far outpaced wage growth. According to the U.S. Bureau of Labor Statistics, average hourly earnings in the Riverside-San Bernardino-Ontario metro area grew by only 12.4% between 2019 and 2023. 

The disparity between the cost of housing and wages is evident in the Housing Affordability Index, published by the California Association of Realtors. The report indicates that as of the last available publication, only one in five of those living in the Inland Empire could afford a home. 

The CAR report also indicates that the minimum qualifying income in the area is $148,000. However, according to the US Census, the median household income in San Bernardino County is around $79,000 and Riverside County about $87,000 

This stark contrast paints a challenging picture for many would-be buyers, especially in the face of current mortgage rates and the “mortgage lock-in” effect.

As we get into the details of April’s market update, we’ll give more context to the story behind the affordability issue and other important elements impacting the local real estate market, in particular:

• Inventory Woes: Why are there so few homes for sale?
• Rate Reality Check: How are higher mortgage rates impacting affordability and decision-making, especially given the slow wage growth?
• The “Lock-In” Effect: Why are some homeowners reluctant to sell and leave their current low mortgage rate behind, and what does it mean for the market?
• Buyer Demand: Is it cooling off, or are eager buyers still out there, even with these hurdles?

Whether you’re a seasoned homeowner, a hopeful first-time buyer, or simply curious about the local real estate scene, this update will provide valuable insights into what is shaping the Inland Empire’s increasingly complex housing market.

San Bernardino County: A Closer Look at a Hot Market

Average Sales Price: The High Cost of Homeownership

In April 2024, the average sales price for a home in San Bernardino County hit $593,572. This figure is a moderate 3.1% increase from the previous month, followed by an 8.5% jump compared to April 2023. Those numbers are nothing shocking. However, if we look at the past three and five year’s sharp increases, we find some startling realities. Let’s put this into perspective:

• Five years ago, the average home price was around $367,000. That means the average price of a home in the area has ballooned by over $226,000 in just five years!
  
  
• The impact on affordability is profound. Consider this: In April 2021, when mortgage rates were around 3%, a 20% down payment on a $491,000 home, the average at the time,  would have resulted in a monthly payment of roughly $1,656 (principal and interest). Today, with rates at 7.25%, that same house, at today’s average sales price, has a payment of  $3,239. Roughly twice as high as April 2021, for the same house.

This massive jump in monthly costs over the last five years highlights the affordability challenges facing buyers in the region, especially when wage growth hasn’t kept pace with housing costs.

Pending and Closed Sales: Signs of Stabilization?

While pending sales saw a 6.9% month-over-month decrease and an 11.9% dip compared to last year, closed sales actually ticked up 8.5% from March 2024. Nationally, there’s been a trend of slowing sales due to rising rates, but the slight increase in San Bernardino County might signal a potential stabilization. It’s too early to definitively call this a trend, but it’s worth keeping an eye on.

New and Active Listings: The Inventory Drought Continues

New listings in April increased 13.5% month-over-month and 20.2% year-over-year, a positive sign. However, active listings still remain below historical averages, creating a competitive market with limited options for buyers. This scarcity is pushing prices up and forcing buyers to act quickly when they find a suitable property.

Strategies for Buyers and Sellers:

• Buyers: Be prepared for fierce competition and consider expanding your search criteria to include areas you may not have initially considered. Get pre-approved for a mortgage to strengthen your offer.
• Sellers: This is a prime time to sell, but be realistic about pricing. While it’s a seller’s market, overpriced homes may still linger.

Months Supply of Inventory: A Strong Seller’s Market

The 3.2 months of inventory in April 2024 indicates a strong seller’s market. This means it would take 3.2 months to sell all current listings at the current pace of sales. While sellers currently have the upper hand, it’s important to remember that markets can shift. Factors like rising rates and increased construction could eventually tip the scales.

Days on Market (DOM): Still Moving Quickly

Homes in San Bernardino County spent an average of 39 days on the market in April. While this is still relatively low, it’s slightly longer than the ultra-fast pace we’ve seen in recent years. This could be another sign that the market is beginning to normalize, albeit slowly.

What’s Next?

The San Bernardino County housing market continues to be a hotbed of activity, but the landscape is evolving. Keep an eye on these trends and stay tuned for our next update as we continue to monitor the impact of rising rates, inventory challenges, and the “mortgage lock-in” effect.

Riverside County: The Pricey Neighbor

Average Sales Price: Nearing Three-Quarters of a Million

The average home price in Riverside County dipped slightly to $727,086 in April 2024, a 0.6% decrease from the previous month. However, zooming out, we show a 5.7% jump compared to a year ago and a jaw-dropping 61.6% surge over the last five years. This means the average home now costs over $275,000 more than it did in 2019.

Mortgage Math: Let’s crunch the numbers. At today’s interest rate of 7.25%, a 20% down payment on a $727,086 home would require a monthly payment (principal and interest) of about $3,948. Compare that to the $1,984 it would have cost in April 2021 when rates were around 3%, and the average price was around $588,000. Again, that is a 100% increase in monthly payments without taking into account the property taxes, which would also be higher. This is a steep increase, making it harder for many potential buyers to enter the market.

Pending and Closed Sales: Mortgage Lock-in Taking Hold?

Riverside County saw similar trends to its neighbor, with pending sales declining 3.4% month-over-month and 6.2% year-over-year. Closed sales, however, experienced a 2.5% uptick from March 2024. While it’s tempting to see this as a positive sign, the overall decline in sales activity likely reflects the impact of higher mortgage rates and the “mortgage lock-in” effect.

Homeowners who refinanced at historically low rates are understandably hesitant to sell and face the reality of much higher payments on a new home. This is contributing to lower inventory levels and impacting overall market activity.

New and Active Listings: The Inventory Challenge

New listings increased slightly in April, up 3.5% month-over-month and 21.1% year-over-year. However, the active listing inventory remains well below historical averages. The limited options for buyers continue to drive competition and price increases.

Strategies for Buyers and Sellers:

• Buyers: Expand your search radius, act fast when you find a property you like, and get pre-approved for a mortgage to show sellers you’re serious.
• Sellers: This market favors you, but don’t overprice. Consider incentives like offering to buy down the buyer’s interest rate to make your home more attractive.

Months Supply of Inventory and Days on Market: Still a Seller’s Market

With a 3.2-month supply of inventory and homes spending an average of 45 days on the market, Riverside County remains firmly in seller’s market territory. However, these metrics could begin to shift as the “mortgage lock-in” effect continues to influence the market.

Riverside vs. San Bernardino: A Tale of Two Counties

Both Riverside and San Bernardino Counties are grappling with the same challenges: soaring prices, low inventory, and rising interest rates. However, Riverside County’s slightly higher average sales price and the greater impact of the “mortgage lock-in” effect (as evidenced by a sharper decline in pending sales) suggest that affordability challenges are even more pronounced here. This could lead to a slower market recovery compared to its neighbor.

The Road Ahead

The Riverside County housing market remains a seller’s haven, but the “mortgage lock-in” effect is casting a shadow over the landscape. As we move forward, it’s crucial to monitor how this dynamic will influence inventory, sales activity, and ultimately, prices.

The Mortgage Rate Conundrum: A Double-Edged Sword

The current mortgage rate landscape is a far cry from the historically low rates of recent years. In April 2021, the average 30-year fixed mortgage rate hovered around 3%. Today, that rate has more than doubled to a staggering 7.25%. This dramatic shift has unleashed a wave of consequences for both buyers and sellers.

Historical Perspective: The Affordability Squeeze

Let’s illustrate the impact with a real-world scenario. Imagine a buyer in the Inland Empire who could afford a $450,000 home with a 20% down and a 3% interest rate in 2015. Their monthly payment (principal and interest) would be roughly $1,518 principle and interest only. Fast forward to today, and the payment for that same house, now costing $727,000 would balloon to $3,968 at a 7.25% rate. That’s an extra $2450 per month – a significant financial burden for many households.

For those already owning a home, the picture is even more complicated. Consider a homeowner who secured a 3.5% interest rate a few years ago and is now eyeing a larger, more expensive property. The prospect of giving up that low rate for a much higher one can be a major deterrent, causing many to stay put – a phenomenon known as the “mortgage lock-in” effect.

Buyer Impact: Navigating a Challenging Market

The combination of skyrocketing prices and elevated mortgage rates has undeniably made homeownership more challenging for many buyers. Some have been priced out of the market entirely, while others are being forced to adjust their expectations, consider smaller homes, or explore less expensive neighborhoods.

However, not all buyers are discouraged. Some are finding creative solutions to overcome these hurdles. They may be putting down larger down payments to secure lower rates, opting for adjustable-rate mortgages (ARMs) with lower initial rates, or exploring government-backed loan programs that offer more flexible qualification requirements.

Seller Impact: The “Golden Handcuffs” of Low Rates

For many sellers, the “mortgage lock-in” effect is proving to be a significant barrier to listing their homes. The thought of trading in a 3.5% mortgage for a 7.25% one on a new home can be a financial non-starter, even if they could sell their current home for a substantial profit.

So, what would it take to incentivize these reluctant sellers? It might require a combination of factors, including:

• Further price increases: A strong enough financial incentive could outweigh the fear of higher rates.
• Rate buydowns: Sellers could offer to subsidize the buyer’s mortgage rate for a certain period to make the purchase more attractive.
• Alternative financing options: Sellers might explore creative financing arrangements, like seller financing or lease-to-own options, to attract buyers who are struggling to qualify for traditional mortgages.

The “mortgage lock-in” effect is a powerful force in the current market. It’s contributing to low inventory levels, influencing buyer and seller behavior, and shaping the Inland Empire’s real estate market.

Buyer Demand: The Inland Empire’s Resiliency

Despite soaring prices and rising interest rates, buyer demand in the Inland Empire has proven surprisingly resilient. While the overall number of closed sales has declined compared to the frenzy of the past few years, the market is far from stagnant. In fact, April saw a slight uptick in closed sales in both San Bernardino and Riverside counties, suggesting that motivated buyers are still out there.

Demand is Not Slowing Down

While national headlines may paint a picture of cooling buyer interest, the data tells a different story in the Inland Empire. Open houses are still drawing crowds, multiple offer situations are not uncommon, and homes are often selling close to or even above asking price. Several factors are contributing to this sustained demand:

• Relative Affordability: Compared to the astronomical prices of coastal California markets like Los Angeles and Orange County, the Inland Empire still offers a degree of affordability that appeals to a wide range of buyers.
• Strong Job Market: The region’s diverse economy, with a growing logistics and warehousing sector, continues to attract new residents and fuel demand for housing.
• Fear of Missing Out (FOMO): With interest rates continuing to climb, some buyers are feeling a sense of urgency to lock in a mortgage before rates become even less affordable.
• Low Inventory: The main drive of sales currently is the fact that there is still far more demand than there are homes for sale.

National vs. Local: A Tale of Two Markets

While the national housing market has experienced a slowdown due to rising rates, the Inland Empire’s unique characteristics are helping it weather the storm. The relative affordability, combined with strong job growth and a persistent housing shortage, create a market dynamic that continues to attract buyers.

However, it’s important to note that this resilience is not without its limits. The longer high prices and rising rates persist, the more likely it is that demand will eventually soften. Additionally, if inventory levels begin to rise due to increased construction or sellers overcoming the “mortgage lock-in” effect, the balance of power could shift in favor of buyers.

Conclusion and Outlook: Navigating a Shifting Landscape

The Inland Empire’s April 2024 real estate market update paints a complex picture of a region in flux. While the market remains hot, with soaring prices and persistent buyer demand, the impact of rising mortgage rates and the “mortgage lock-in” effect is undeniable.

Key Takeaways:

• Prices are still climbing: Despite economic headwinds, both San Bernardino and Riverside counties continue to see significant year-over-year price increases, though the pace may be slowing.
• Inventory remains scarce: The shortage of homes for sale is a major factor driving competition and price growth, but the “mortgage lock-in” effect is exacerbating the issue.
• Buyers are resilient: Demand remains strong, fueled by relative affordability, a robust job market, and concerns about further rate hikes.
• Sellers are hesitant: The prospect of giving up historically low mortgage rates is making many homeowners reluctant to sell, further constraining inventory.

What’s Next for the Inland Empire?

The future of the Inland Empire’s housing market hinges on several key factors:

• Interest Rates: Will they continue to rise, stabilize, or even fall? Any significant movement will have a major impact on affordability and buyer/seller behavior.
• Inventory Levels: Can builders increase supply to meet demand, or will the “mortgage lock-in” effect keep inventory constrained?
• Economic Conditions: Will the region’s job market remain strong? How will broader economic trends like inflation and recession fears impact buyer confidence?

Expert Predictions:

Industry experts offer a range of forecasts for the Inland Empire market:

• Some predict a gradual slowdown: As rates continue to rise and affordability becomes more challenging, the market could experience a gradual cooling.
• Others see continued strength: The region’s unique attributes, including relative affordability and strong job growth, could continue to prop up demand and prices.
• A few anticipate a market correction: If rates rise significantly higher or the economy takes a downturn, a more substantial price correction could occur.

The Bottom Line

The Inland Empire’s real estate market is at a crossroads. While the current outlook remains positive for sellers, the road ahead is uncertain. Buyers and sellers alike should stay informed about market trends, work with experienced professionals, and be prepared to adapt their strategies as the landscape continues to evolve.

Next Steps

While this market update provides valuable insights, it’s just the beginning. For a more personalized understanding of how the current market trends impact your specific situation, it’s always best to consult with a local real estate professional.

If you’re considering buying or selling in the Inland Empire, we can help. Our team of experienced agents has a deep understanding of the local market and can provide you with the expert guidance you need to make informed decisions.

Get in touch with me today for a free consultation, and let me help you navigate the Inland Empire Real Estate Market. Ana (909) 915-9581